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The great cryptocurrency scam

The world of Bitcoin and cryptocurrency has been described by some as the new Wild West.

Associated with illegal black markets, million dollar thefts and even accusations of conspiracy to murder, it’s not hard to see why this new technology has gained such a bad rep.

If you fancy yourself as a bit of a crypto cowboy then there are a few things you should know before strapping on your virtual spurs. It’s a harsh webscape, full of hackers and scammers more stealthy than any traditional pickpocket. The big difference is that these pickpockets can sometimes get away with millions.

To help you stay safe, here are three cryptocurrency scams you should try an avoid:

1. The eBay fraudster

Most Bitcoin exchanges worth their salt have a complicated and lengthy sign-up process. Although due diligence in this case is good, it’s not surprising that many people have turned to more familiar eCommerce platforms like eBay to trade cryptocurrency.

The problem with this is that eBay really wasn’t designed to do this. Scammers have taken advantage of PayPal’s refund policy to hack an eBay account and bid huge amounts for coins. They’ll then provide you with their own wallet address to send the coins to.

When the real account owner finds out he’s been hacked, PayPal will reverse their payment, and because it’s impossible to reverse a Bitcoin transaction, you’ll lose your coins forever.

If selling your coins on eBay, make sure you trust who you’re selling to. Email and phone them if possible to confirm their purchase is genuine.

2. The confidence trickster

Trading alternative cryptocurrencies (altcoins) like Litecoin, Namecoin and Peercoin can be a good way to make a quick buck. But it’s also a quick way to lose a lot.

Unlike in the stock market, there are no laws stopping price manipulation on cryptocurrency exchanges and some groups/individuals take full advantage of this.

Known as a ‘pump and dump’, an announcement will be made over social platforms like reddit and Twitter that a certain cryptocurrency is going to be bought at a certain time, hence creating a flurry of buying that artificially inflates the price. This continues up until the designated time, when the price will momentarily spike and then drastically plummet.

Smart traders with lots of coins between them will often have already bought a lot of the coin in question over the days before the pump. This means that they can wait for their confidence trick to artificially inflate the price, then sell all their coins to those caught up in the maelstrom.

Don’t get caught up in the hype of a pump and dump and only invest in coins after a good amount of research first.

3. The great train robbery

This last one isn’t necessarily a scam, but it’s still a potential danger to consider nonetheless. Some time around February 9 the price of Bitcoin plummeted across all major exchanges.

Subsequently, many exchanges announced that they were suspending Bitcoin withdrawals due to what has been described as ‘transaction malleability’ - a bug that allowed hackers to alter transaction details, tricking exchanges into thinking no transaction was made.

This resulted in the black-market site, Silk Road 2.0, being drained of $2.6 million, with 47% of users losing all coins that they had stored in their Silk Road wallets. But be warned - it’s not only illegal sites that this can happen to.

If using Bitcoins, or any other cryptocurrency, to trade or purchase items online, it’s much safer to transfer your coins from your own encrypted wallet stored on your computer to the website’s wallet as and when you need them.

This was posted in Bdaily's Members' News section by Crunch Accounting .